Company X and Company Y Are in the Same Industry

Essay

Company X and Company Y are in the same industry and have the following ratios.
$$\begin{array} { l c c c } \hline & \text { Comp any } \mathbf { X } & \text { Company } Y & \text { Industry Average } \\\hline \text { Current ratio } & 1.2 & 0.89 & 1.1 \\\text { Debt/equity } & 0.20 & 0.40 & 0.3 \\\text { Total asset turnover } & 1.9 & 2.1 & 2.5 \\\text { Net profit margin } & 4.2 \% & 3.8 \% & 4.0 \% \\\text { Return on equity } & 12.4 \% & 14.8 \% & 15.0 \% \\\text { Dividend payout ratio } & 25.0 \% & 10.0 \% & 20.0 \% \\\hline\end{array}$$ Discuss the relative natures of the two companies in terms of risk and return. Identify the more growth- oriented firm and justify your selection. Support your discussion and conclusions by referring to the ratios.